PROCEDURE FOR INCORPORATION OF SECTION 25 (NON-PROFIT MAKING COMPANY)
· WHAT IS A NON-PROFIT MAKING COMPANY
Any association desirous of being incorporated as a company with limited liability, without the addition of the word “Limited” or the words “Private Limited” as the case may be, shall make an application in writing to the Registrar of Companies (formerly Regional Director) on behalf of such company/proposed company for grant of licence under section 25 of the Companies Act, 1956.
Section 25 companies are those companies which are formed for the sole purpose of promoting commerce, art, science, religion, charity or any other useful object and have been granted a licence by the Registrar of Companies (formerly Central Government) recognizing them as such. Such companies should intend to apply its profits, if any or other income only in promoting its objects and must also prohibits payment of dividend to its members. Thus there are three criteria for determining whether a particular company is section 25 company or not:
(a) The object for which the company is proposed to be formed or already formed is to promote commerce, art, science, religion, charity or any other useful object;
(b) Profits, if any, earned in carrying out the object and other income are proposed to be applied only for promoting its objects; and
(c) The company intends to prohibit the payment of dividend to its members.
· OBJECTIVE OF SECTION 25
The objective of section 25 of the Companies Act, 1956 is to provide special benefits and privilege to such companies, which are formed for the purpose of:
(a) Promoting commerce, art, science, religion, charity or any other useful object, and
(b) Apply its profits and incomes for promotion of its objects and prohibit distributing them as dividends.
Such associations enjoy their standing as a company and at the same time are not required to suffix the words “Private Limited” or the word “Limited” as required under section 13(1)(a).
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